L.A. has lots of public companies more than 200 of them stretching from Calabasas to Hollywood to El Segundo. And leading the way are some big names indeed Amgen Inc., with a market capitalization of close to $80 billion, followed by Walt Disney Co. ($50 billion) and Occidental Petroleum Corp. ($32.5 billion).
But after the first dozen or so, something dramatic happens to the numbers: They plunge fast and deep.
By No. 9 (Hilton Hotels Corp.), the market cap falls to under $10 billion. By No. 16 (DaVita Inc.) it’s under $5 billion, and by No. 57 (FirstFed Financial Corp.) it’s under $1 billion a relatively modest threshold. (A company’s market cap is the total value of a firm’s outstanding shares, calculated by multiplying the market price per share times the total number of shares outstanding.)
The final 25 on the list of 200 have valuations barely higher than the company revenues: Flamemaster Corp. ($6.1 million), CompuMed Inc. ($4.7 million) and No. 200 Amexdrug Corp. ($1.7 million).
Who are all these guys? Just the major force of the local economy.
Some are just getting started, with less than 50 workers. Others are barely scraping by, with a string of losses. Still others are simply mature companies that happen to be public. They share one thing: smallness.
The latest Fortune 500 presents a stark reminder of where L.A. stands among the nation’s major corporations. New York, of course, has more Fortune 500 companies than any other city 43. After that is Houston (20), Atlanta (14), Chicago (10) and Dallas (8). What about Los Angeles? Try four. That’s fewer than Troy, Mich., which has five.
To be fair, the people at Fortune don’t count nearby Thousand Oaks, El Segundo and Calabasas in their calculations. Taking the entire Los Angeles area into account, there would be 16 Fortune 500 companies. Still, that’s well shy of Northern California, with 24.
L.A. is just not a Fortune 500 kind of town never has been, never will be. And there’s nothing wrong with that. Southern California is the quintessential mid-market economy, and for the last decade or so, as giant players in aerospace, energy and banking started leaving town, these small- to mid-sized businesses have become the motor driving regional growth.
“It’s kind of a double-edged sword,” said William Barrett, Jr., vice chairman, president and chief executive of Fiduciary Trust International Inc., a unit of Franklin Templeton Cos. “The downside is that smaller companies don’t have the financial resources to grow, so what happens is another successful company comes in and buys them, and suddenly they’re gone. But that new money goes into the economy, the entrepreneur starts a new business and the cycle begins all over again.”
Background: Reaching this point
Many of the well-known names that formed the cornerstone of L.A.’s civic and cultural life are long gone Atlantic-Richfield Carter Hawley Hale, First Interstate Bancorp, Great Western Financial, Security Pacific Corp. and Times Mirror Corp.
Replacing them has been an eclectic mix of cutting-edge entertainment and technology firms, such as video game maker Activision Inc., homeland security firm Cogent Inc. and international distributor UTI Worldwide Inc. three names that are among the area’s top 35 public companies.
Mingled among the newcomers is a core of stable companies real estate investment trusts, Korean and Chinese-American banks, apparel retailers and entertainment firms.
Los Angeles became the city it is largely in response to the prolonged downturn of the early 1990s, when Pentagon cuts hit the aerospace and defense industries hard. Nearly one in four aerospace workers lost their jobs. California shed more than 730,000 jobs from 1990 to 1993 with 70 percent of those coming from Los Angeles County alone. Roughly one-quarter of the jobs were lost from the manufacturing sector.
There were other well-chronicled woes: the savings and loan implosion, the riots and the 1994 Northridge earthquake. But it wasn’t a freefall. All those layoffs led a generation of engineers and others who didn’t want to leave Southern California to develop new businesses.
L.A., after all, remains a massive market for vendors of all sorts. It has two world-class ports and a transportation infrastructure to move goods throughout the country. It has Hollywood, which defies economic bad times. And it’s a place where lots of private money waits to be put to use, whether through venture capital or outright acquisitions.
Managing all that money is an industry unto itself private equity firms, money managers, financial institutions, accountants, lawyers.
Pluses: An agile economy
Lee Harrington, president and chief executive of the Los Angeles Economic Development Corp., isn’t shy about noting that Los Angeles leads the nation in new start-up businesses as well as failures.
“What it means is that those that survive are pretty agile,” he said. “Compared with 1989 to 1990, the difference really is in the number and size of the business base and the diversity of industries.”
It’s what some call the “resilience factor.” Spread the number of companies across a range of sectors and the economy will be able to withstand a recession. These days, businesses are thriving in the sweet spots of international trade, mortgage services and construction.
In the past five years, Los Angeles has created nearly 350,000 jobs equivalent to the number lost during the dot-com bust, when many telecommunications and technology companies simply got wiped out.
Because 95 percent of all businesses in Los Angeles County have fewer than 49 employees, wealth tends to be spread out. In 2004, there were nearly 100,000 millionaire households, a 9.3 percent increase from a year earlier, according to market research firm Claritas. That number is expected to increase 50 percent in the next five years.
In various ways, those numbers help sustain the local economy whether it’s buying houses or getting legal advice and unlike cities that are reliant on a handful of major employers, they bring stability to the market.
Minuses: Missing corporate money
The absence of large companies often means workers have to rely more heavily on government services to make up for a shortfall in benefits. There’s also less spending on philanthropy and a greater reliance on the remaining large companies in the area to support the arts.
“The options are fewer here so it requires a different kind of fundraising,” said Elizabeth Kennedy, administrative director of the L.A. Opera.
Caroline Nahas, managing director in Southern California for Korn/Ferry International, said the biggest impact from L.A.’s reconfigured business base has been the unintended consequence of leaving the city rudderless.
“It becomes much more difficult to galvanize high-profile leaders to get things done in terms of civic responsibility,” she said. “If you look at the pockets of Los Angeles, there’s downtown, Century City, El Segundo and Warner Center, so there’s no one nucleus of companies and individuals. Many of the firms that have become leaders are service companies, not major financial institutions or even industrial or consumer companies.”
Does that matter?
For the city and county, having fewer Fortune 500 firms translates into lower sales and tax revenue to support government services. With high taxes and labor costs, the companies that are growing often choose to open new facilities out of state.
Countrywide Financial Corp., based in Calabasas, is the fourth-largest public company headquartered here, but it plans to expand in Texas, where it will hire 7,500 new employees.
Inevitably, this creates disparities rich and poor, well-educated and non-educated, highly skilled and low-skilled. “If or when the housing bubble bursts, how are people going to be able to afford the payments?” asked Larry Rinehart, president and chief executive of PFF Bancorp Inc.
Outlook: To stay or leave?
The next year or so of economic turbulence could help determine whether middle-market companies weather recession better than their larger counterparts. “The biggest problem I see is leakage,” said Harrington, referring to companies that move elsewhere just as they are starting to expand.
Looking forward, UCLA’s Anderson School of Management, which correctly predicted the past two recessions, believes that GDP growth will slow to 3.5 percent next year and 1.5 percent in 2007, with a likelihood that the current housing bubble will burst. Not everyone believes it will play out that way.
One view is well-established: L.A. will remain smallish in its public
companies. Most of the businesses based here are not in a position to reach Fortune 500 heights anytime soon or ever and while the exodus appears to be slowing down, there’s little likelihood that large corporations based elsewhere will transplant to Southern California. Between housing prices and traffic, why would they?
“There are pros and cons when you have mostly small and mid-sized companies in a region,” said Greg Stubblefield, president of the California and Hawaii operations of Enterprise Rent-A-Car, which is headquartered in St. Louis. “It poses a strategic challenge in how business is done. You have to hustle more, and really carve out your niche.”
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RESOURCE: L.A.’s Top 200 Largest Public Companies
L.A. has lots of public companies, but beyond the big boys like Amgen, Disney and Occidental, the landscape turns decidedly smaller. Most of the names making up the Business Journal’s list of 200 largest public companies will never make it onto the Fortune 500, but they keep the Los Angeles economy humming. Besides, there’s nothing necessarily wrong with being puny. Follow the links below to view the full list.
